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Share Insurance: Control : Cash : Certainty

13 April 2017
 

The death of your co-owner/shareholder in a business is an uncomfortable thought, and is an event likely to bring difficult consequences. So, as with many things in life, it’s best to hope for the best, but plan for the worst.

When a co-owner dies, two problems usually follow:

  • Surviving owners risk losing control of their deceased colleague’s shares
  • The bereaved family may wait years for a disputed settlement for the value of their shares

‘Fair value’… or assured value? Articles of Association and/or Shareholder Agreements may state that surviving shareholders have a right to buy the deceased’s shares at ‘fair value’. But these documents rarely explain where the funds will come from to buy the shares or how ‘fair value’ is affected by the death of a shareholder.

Typically, the family of the deceased will wish to maximise ‘fair value’, while the company’s advisers will seek to reduce it.

Most people enjoy a good working relationship with colleagues but on death relations between a bereaved family and former colleagues can fracture under legal and financial stress.

There is a way to ensure Control for surviving shareholders while at the same time providing Cash to buy back the deceased’s shares, with the Certainty that this exchange is backed by a guaranteed insured value, not ‘fair value’.

How can you achieve this? Well, there is an insurance policy out there to help with just that.

Share Insurance is a share buy-back arrangement with two main components:

  • Life assurance policies on each shareholder
  • A Cross Option Agreement between your company and its shareholders

In simple terms, your company pays the premiums and is the beneficiary of the policies. In the event of the death of a shareholder, the company receives a cash lump sum, which it uses to buy back and cancel the deceased’s shares, leaving the surviving shareholders with 100% ownership.

The benefits:

  • The deceased’s family are assured a known financial outcome in the form of a prompt cash settlement
  • The continuing owners are assured control of the business without recourse to borrowing

How much does Share Insurance cost? It depends on a number of factors, for example ages and health of shareholders, and of course the value of shares being insured, but in most cases Share Insurance is remarkably inexpensive.

Control : Cash : Certainty

If you wish to find out more about Share Insurance and how it might be of benefit to your business, please contact cwright@springfords.com.

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